Is It Too Late to Buy Stock in the Newest Member of the $2 Trillion Club?

There are only seven companies in the world with a market capitalization of at least $1 trillion. Among these businesses, only Microsoft, Apple, Nvidia, and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) have reached an even more exclusive club.

No, I’m not talking about gaining access to the “Magnificent Seven” — although each of those companies is in that club, too. All four of these tech giants have a market cap of at least $2 trillion, and Alphabet is the newest member to reach that milestone.

Following an encouraging first-quarter earnings report, Alphabet’s shares have soared as high as 9%. Is it too late for growth investors to scoop up shares in Alphabet since eclipsing a $2 trillion valuation?

I don’t think so. In fact, now looks like as good a time as ever to scoop up some shares. Let’s explore why.

Don’t sleep on the advertising business

One of the biggest knocks against Alphabet over the last couple of years is that its core advertising business has been slowing down. Stiff competition from Meta Platforms, TikTok, and some smaller players, such as Pinterest and Snap, have found ways to attract cyclical advertising dollars away from Alphabet.

What I think investors are missing is that even though Alphabet’s advertising business may not be growing at levels seen in the past, this segment remains enormously profitable for the company. In fact, Alphabet’s advertising and services operations account for nearly all the company’s operating income — with cloud computing contributing nominal profitability.

GOOGL Revenue (Quarterly) Chart

The chart above demonstrates the growth in Alphabet’s operating income relative to revenue. Although Alphabet’s revenue has started slowing down a bit, the company is still achieving an impressive level of operating efficiency. This has resulted in significant margin expansion and robust free-cash-flow generation for Alphabet. It’s these excess profits that are fueling the next frontier of Alphabet beyond advertising.

Image source: Getty Images.